A group of Wellington taxi drivers are one step closer to vindication with the High Court finding their company board is likely to have breached its duties to them as shareholders
In a long-running saga, drivers for Wellington Combined Taxis have been given the all clear to take their board to court on behalf of the company, which doesn't want to do it.
Their application to take what’s known as derivative action has been approved by the High Court.
READ MORE: * Taxi drivers fight to take their board to court * Calls to bring 30-year-old company law into the future
It all centred on the board’s decision during 2020 to give those who owned shares in the company, but weren’t drivers, a substantial decrease in their monthly levy.
Shareholders with a taxi in service would pay $370 a month, lowered from $434, while those not operating at all (i.e. did not have a driver to operate the share) would only pay $40 a month.
The reduction is estimated to have cost the company, which has been operating at a loss since 2020, at least $1 million in revenue.
The directors dispute it could be this much, adding it does not take into accounts bad debts that could have arisen if the levy was not reduced and shareholders were simply cancelling their contracts.
But regardless, those forced to pay the higher levy say it was not in the best interests of the company to strip back revenue in such a way, and say the way the decision was made was also out of step with what was in the company’s constitution.
The directors said the reduced levy was a way to keep drivers. However, in his judgment, Associate Judge Andrew Skelton was not convinced.
“With regard to investor shareholders who are unable to lease and operate their share, there is no driver to retain, and it is difficult to see how the 2020 Levy Policy incentivises the investor shareholder to find a driver. With regard to Driver Shareholders, the policy will only apply to them if they choose not to drive and decommission their vehicle, therefore reducing the number of drivers earning fares rather than retaining drivers.
“Therefore, it is difficult to see how the 2020 Levy Policy is a policy for retaining drivers. Arguably, it is a policy for retaining shareholders, which results in reduced levy revenue for WCT and potentially fewer drivers earning fares.”
Judge Skelton said it could be argued that implementing a policy focused on “looking after” a particular group of shareholders was not in the best interests of the company.
This was exacerbated by a conflict of interest issue with five of the six board directors, who implemented the policy, also being investor shareholders.
“Moreover, having implemented the policy, three of those directors then purchased additional shares.”
Also backing up the claim from drivers that the board’s powers had not been properly exercised was that of the 270 votes cast in favour of the policy at the August 2020 Annual General Meeting, 251 were votes exercised by directors and management staff, including through proxies.
He also found that despite the board saying it had legal advice supporting the policy, that advice was not released, so was not possible to assess.
Previous legal advice from 2012 when a split levy was explored said a "special resolution" would need to be passed. That is, a majority vote across both the investor shareholder group and the driver shareholder group, as opposed to a total majority.
The 2020 levy was implemented after a total majority, not a special resolution.
The directors argued "no prudent business person would pursue the proposed claim", the claim was not arguable on available evidence, and any benefit was significantly outweighed by its cost.
Judge Skelton disagreed with all three arguments.
The levy remains in place despite the board’s characterisation of it as a Covid-19 relief measure.
Drivers are concerned the prolonged reduced revenue would have a material effect on the running of the business, including underinvestment in core systems and a decline in service for its customers.
The share price has also plummeted.
Given money is so tight, the certainty now of a trial is a difficult prospect for Wellington Combined.
The company said it would need to raise shareholder levies to fund the court action, sell off assets or take on more debt.
It suggested making the drivers pay for the trial or capping how much the company should pay.
But Judge Skelton disagreed and said reasonable costs should be met by the company, adding increased levies would not necessarily be as onerous as suggested.
“For example, a modest additional levy of $40 per month on all shares for one year would raise funds in the region of $240,000 towards funding of the intended proceedings.”
The action would work as if the company itself was taking the board and its directors to task over duty breaches as outlined in the Companies Act, and is expected to take at least a week.
A date has not yet been set.
